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A Guide for the First-Time Home Buyer

The Advantages of Home Ownership
The purchase of your first home is one of the most important decisions you will make in your lifetime. It will quite likely be the best investment you every make as well.
The primary advantage of becoming a homeowner is the opportunity to build equity. You can expect the value of your home to appreciate steadily during the time in which you live in it because of your own property improvement measures, the strength of the state’s economy, and other factors.

As a homeowner you also will realize substantial savings through federal income tax deductions on property taxes and mortgage interest. These tax savings are not available to you if you rent an apartment or other property.

Finally, through homeownership you will gain a special sense of independence, privacy, and security. The satisfaction of “settling down” and establishing your roots is difficult to put a value on, but is just one of the many benefits you receive the moment you purchase a home.

How Much Can I Afford?
Although housing affordability is becoming increasingly difficult for many, it is important for you to carefully study your total net worth vs. your fixed expenses before you determine the size and type of home you can afford. You may be surprised to discover that you have a greater amount of disposable income available to you than you first thought. As a result, you should complete the mortgage pre-qualification process as soon as possible to learn how expensive a home you may purchase.
Typically, the amount you will be able to afford for housing costs (principal, interest, taxes, and insurance) per month is equal to about 28-33 percent of your gross monthly income. These ratios are the guidelines used by many, but not all, banks and mortgage companies. Your REALTOR® can help you find a bank that may have higher qualifying ratios.
In addition, when estimating your actual purchasing power, most banks will require that approximately 36% of your gross monthly income be greater than the total of your monthly debt payment.

A number of financing options, including low-interest mortgage funds, also are readily available to you as a first-time homebuyer. Such programs have only minor restrictions and will increase the opportunities you have to purchase your first residence. When calculating the maximum price of a home you can afford, don’t forget to include the down payment you expect to make as well. The larger your down payment, the lower your monthly mortgage cost.

Follow These Steps To Purchase Your First Home
1) Prepare a list of your needs and then a list of your wants. Be sure to distinguish between them. You should be able to meet your needs, but may have to compromise on your wants. Have a REALTOR® or a bank pre-qualify you to determine how much you can afford to spend on a home. Allow your REALTOR® to show you the properties that will most closely meet your needs and wants. As a prospective home buyer you should consider retaining an attorney to represent you in the transaction. Once the decision is made to purchase the property of your choice, contact your REALTOR® to assist you in completing an offer which will be accompanied by your deposit.

2) Your REALTOR® will assist you in reaching an agreement on the price and terms of sale. Remember, your REALTOR® must disclose whether s/he represents you, the seller, or both in the transaction. Disclosure should occur at the first personal meeting to discuss a specific property. Once your offer has been accepted by the seller you are ready to satisfy the contingencies included in your offer such as financing and inspections. Your REALTOR® can provide the names of local businesses from which you can select people to perform these services, and arrange an appointment with one or more lending institutions. When any requested inspections have been completed and any required mortgage applications have been made, just relax and wait for your mortgage approval.

3) Your mortgage loan has been approved. Now it is time to arrange for a closing date for transfer of title, homeowners’ insurance, the movers, ordering of electric and telephone services, and making any transfer of funds for a bank or certified check for closing day.

4) Closing day. Be sure to arrive promptly with your bank or certified check and insurance policy or binder, then you can relax and enjoy the moment. In an hour or so you will have become a new homeowner. Congratulations! You have made the best investment of your life – A home of your own!

Methods of Financing To Consider
1. Adjustable Rate Mortgage – A loan that allows the lender to adjust the borrower’s interest rate and payments at prescribed times and often with maximum rate changes for each adjustment period. Lower interest rates are customary initially.
2.
Fixed Rate Mortgage – A loan that fixes the interest rate as a prescribed rate for the duration of the loan. Generally is offered at a higher interest rate than adjustable rate payments, but is favored during low interest rate periods.
3. Creative Financing Methods – Options include FHA and VA loans, graduated payment or buy-down plans, home equity loans, or second mortgage. Your REALTOR® can provide information on these types of financing at your request.

Common Real Estate Financing Terminology
Comparative Market Analysis – An estimate of real estate value, usually issued to the standards of FHA, VA, FNMA. Recent comparable sales in the neighborhood are the most important factor in determining value.

Closing Costs – Expenses incurred in the closing of a real estate or mortgage transactions. Purchaser’s expenses normally include: cost of title examination, premiums for title policies, survey, attorney fee, lender’s service fee, and recording charges. Also, the purchaser may have to place in escrow a sum of money to cover accrued real estate taxes and insurance.

Equity – The difference between the market value of property and the homeowner’s indebtedness (mortgage).

Mortgage – Pledge of real property to secure a debt by a written instrument given by the mortgage.

Origination Fee – A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.

Point – One percent of loan amount.

Private Mortgage Insurance (PMI) – Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

Title Insurance – An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.

How a REALTOR® Can Help You Attain the American Dream
A REALTOR® is familiar with local home loan and seller-financing options and can suggest how to accrue a down payment, determine how much you can afford, and explain financing methods.
A REALTOR® knows the local real estate market and can accurately assess home values. REALTORS® also are aware of local tax levels, utility costs, and municipal services.
A REALTOR® has a complete inventory of homes for you to select from at his/her fingertips through the use of the local Multiple Listing Service.
A REALTOR® has the forms to prepare a purchase and sales agreement and knows how to facilitate negotiations between both seller and buyer. With no emotional ties to the property, a REALTOR® can be objective in pointing out the features and drawbacks of each home.
A REALTOR® must disclose whether s/he represents the buyer, seller, or both prior to meeting with you to discuss a specific property, and also is bound and obligated by a strict Code of Ethics to give fair treatment to all parties to the transaction.